Enterprise systems development strategy BRITISH AMERICAN TOBACCO
British American Tobacco (BAT) is a leading tobacco company globally producing 200 brands of cigarettes. The company global drive brands are Dunhill, Pall Mall, Kent, and Lucky Strike, and these brands provide 35% of the company revenue. Other international brands manufactured by the company are Benson & Hedges, Rothmans, Viceroy, Vogue, Kool, Gold leaf, John player, Express 555 etc. British American Tobacco operates under tobacco industry and is the second largest tobacco company in the world with market capitalization of $98.07 billion. The overall market capitalization of tobacco industry is $356 billion and within the global tobacco industry, British American enjoys 27.55% of the market share. However, Philip Morris International Inc. is an industry leader with the market capitalization reaching approximately $151.2 billion.
British American Tobacco operates in 180 markets with more than 708 billion cigarettes sold annually. The vision of the company is to achieve leadership role within the global tobacco industry. At the end of the 2011 fiscal year, British American Tobacco recorded the revenue of £15.4 billion and the company turnover was £46 billion. The company business strategy is its dedication to increase the funding on research and development (R & D) as well as investing in innovation to produce high quality and less toxic products for customers. The company differentiates itself within the industry by focusing on the innovation, which contributes to the revenue growth and building shareholder value.
British American Tobacco has been operating for more than 100 years. The company was formed in 1902 forming a joint venture with the UK's Imperial Tobacco Company. However, since the last five decades, British American Tobacco has focused on the acquisition of other companies as well as expanding internationally. By 1970, British American Tobacco engaged in the manufacturing of Tobacco in 140 factories across 50 countries. In 1976, the company underwent re-organization process, and within two years, the company became the third largest company in the UK and largest tobacco company globally. Through continuous acquisition, the company has been able to acquire several important brands such as Kent in 1970s. However, in 1990, the changing of the communist economy to free market economy provided added opportunities for British America Tobacco.
"In the 1990s, economic liberalization and the break-up of state monopolies open up new trading opportunities in Central and Eastern Europe and the Far East. British American Tobacco acquires Hungary's Pecsi Dohanygyar in 1992. Acquisitions and joint ventures follow rapidly in Ukraine, Uzbekistan, the Czech Republic, Russia, Romania and Poland." (British American Tobacco 2011 P. 5).
The years 2000s opened series of opportunities for the company. In 2009, the company concluded a deal of U.S.$580 million acquisition of Bentoel. More importantly, the company has just concluded $452 million acquisition of Protabaco based in Colombia. (British American Tobacco 2011).
Continuous success of British American Tobacco has been attributed to the significant investment in the innovation, which the company has embarked on in the last few years making the company to be able to differentiate itself in the industry. The company implements the latest technology for the manufacturing of product and packaging making the company to enjoy speed in the market. The company also employs latest technology in the exploration of low toxic cigarette, which is less harmful to consumer. Additionally, the company has also implemented Enterprises Resources Planning (ERP) to reduce maintenance costs. Within the tobacco industry, firms implement ERP to integrate data to achieve efficiency.
Use of ERP and associated IT within the Tobacco industry
Rapid changes in the Information Communication Technology (ICT) have created both benefits and threats to organizations. Digital information system has created a new paradigm where business leaders use digital knowledge to deliver value to customers as well as achieving business performances. Tight competition within the tobacco industry and vision to achieve leadership role within the industry have forced tobacco industry to integrate Enterprises Resources Planning (ERP) to achieve performances. (Zain, 2008). More importantly, many leading firms within the industry have profoundly incorporated ERP system in the business model to facilitate best business practice, cost reduction, rapid decision-making, and better management practice. The implementation of ERP system has been identified as an effective tool to facilitate both strategic and operation benefits in competitive market environment. (Huang & Hsu 2011). Unfortunately, many organizations are yet to derive the benefits associated with ERP due to the huge costs of implementation.
Enterprises Resources Planning is the strategy that firms employ to provide easy working environment and integrate business function in a single database so that there are efficient information flow between management functions. Shi & Halpin (2003) defines
"Enterprises Resources Planning as a computer program that provides a general working platform for all departments of an enterprise with their management functions being integrated into the program. The program runs off a single database so that all departments can easily share information and better communicate with each other." (P 214).
Tobacco industry is one of the highly competitive industries globally and the industry continues to face criticisms from stakeholders on the ground that the cigarette smoking is harmful to human health. To ensure that firms within the industry produce high innovative products that compose of low toxic, tobacco firms employ ERP for the application of business integration to bring greater efficiency in the tobacco production process. Since 1990s, firms within the tobacco industry have been integrating ERP to achieve business and production efficiency. One of the companies within the tobacco industry that integrates ERP to achieve business efficiency is BAT that implements the SAP application to achieve industry-leading performances. To produce innovation product and achieve efficiency within the industry, British American Tobacco has integrated ERP to enhance network stability. Over the years, British American Tobacco has faced challenges in reducing the IT and maintenance costs. To address the challenges, BAT has deployed the SAP-based application to reduce costs and maintenance costs associated with the application delivery. (Lane, 2008). Additionally, BAT also implements ERP for the global application portal to enhance costs reduction of the IT infrastructure and maintenance costs. BAT has also used ERP solution to deliver the fastest network management solution to optimize performance. Dai and Su (2009) argue that tobacco industry uses ERP to assure information quality (IQ) as well as managing production planning and control. The author argues that tobacco industry faces lots of risks in the global market place. Risks associated with loss potential customers. Typically, loss of new customers plays an important role in the loss of potential customers. Since major source of industry income is the income derive from current customer and the cash flow derive from business process, thus, tobacco industry implements ERP to minimize the risks, and minimize consumer loss.
Ray (2011) also supports this argument by pointing out that tobacco industry started using the ERP for the production planning as back as 1999. The author reveals that the important factor for the implementation of ERP within the tobacco industry is for planning purpose where the industry employs resources schedule for operational purpose. (Ray, 2011).
However, several issues and development push tobacco industry in implementing ERP for business process.
Current Issues and Developments Driving Change with the Tobacco Industry
One of the major issues and development driving changes within the tobacco industry is the international pressure on the tobacco industry to produce toxic free cigarette. The stakeholders such as international pressures group and healthcare providers are accusing tobacco industry as the primary cause of cancer, and other tobacco related diseases.
McDaniel, Intinarelli, and Malone (2008) argue that tobacco related diseases cause 5 million deaths yearly, and the massive increase in the death caused by tobacco smoking is due to the ability of multinational tobacco companies to thwart the tobacco control worldwide. The authors further argue that the tobacco industry has played a major role in increasing public health disaster. Since the middle of twentieth century, increased knowledge on the risks associated with the tobacco smoking has led to the increase in regulation to decline the consumption of tobacco. For example, the BAT recorded a decline in the sales of tobacco between 2010 and 2011 by -0.4% due to the wide negative publicity from different stakeholders to decline the tobacco consumption. Thus, the tobacco industry also faces several risks from the production of tobacco for human consumption. The risks such as court charges, payment for damages due to the health problem they cause and consequently leading to decline in the revenue. Identification of the risks facing the industry has made BAT management to declare that
"we have identified a core list of potential threats that we believe could represent significant risks to our business. As can be seen from our review of the key Group risk factors in this report, we regularly monitor their potential impact and likelihood and controls are in place to ensure that they are carefully managed." (Annual Report, 2011 P. 6).
One of the major strategies that could make the industry to manage the risk is the integration of…